Saving Social Security

The budget deficit figured prominently in much of the discussion surrounding yesterday’s election. Yet the outcome of the election will do little of meaning to restrain our medium-term deficits — and arguably makes a serious medium-term deficit reduction package less likely. The silver lining is that the election could make Social Security reform more likely — if the administration chooses to jump at the opportunity.

The shift to Republican control of the House won’t help that much in restraining medium-term deficits because most of the proposals that have been put forward are either lacking details and unlikely to be viable once the details are revealed (e.g., restraining non-security discretionary spending well beyond the administration’s freeze), or don’t have that big of an impact (e.g., freezing federal salaries, especially if the military is exempted).

And as I have written previously, meaningfully reducing the deficit over the next five to 10 years requires a significant increase in revenue — which is even less likely to be enacted given the shift in the House. In the meantime, look for a nasty fight over a debt limit increase early next year.

In contrast to the medium-term fiscal outlook, which is not improved by the election results, Social Security reform may be. Erskine Bowles and Alan Simpson, the co-chairs of the fiscal commission due to report at the beginning of December, have both expressed a desire to restore solvency to Social Security. And Republican leaders have previously expressed a willingness to tackle the issue too.

Social Security is not the nation’s key long-term fiscal problem — health care is. (A column in Thursday’s Times will discuss health care.) But Social Security does face a long-term deficit, and a variety of reasonable reform plans (including one I wrote with Peter Diamond, a winner of this year’s Nobel Prize in Economics) have been proposed to address that deficit.

The left, though, seems adamantly opposed to restoring actuarial balance to Social Security now. I have trouble understanding this reluctance for several reasons: the key issue progressives had been concerned about — individual accounts within Social Security — has been definitively won in their favor (for now); they have a president from their party in office, which will not always be the case; acting now would allow changes to take effect more gradually, cushioning the blow; and establishing some credibility on out-year fiscal problems by enacting Social Security reform could open up (admittedly limited) running room to pass necessary additional stimulus legislation in the short run.

Given the left’s strident opposition to any serious discussion of Social Security reform, the issue will provide a key early indicator of the administration’s response to the election results.

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Peter Orszag is a distinguished visiting fellow at the Council on
Foreign Relations. Dr. Orszag was the director of the Office of
Management and Budget in the Obama administration from January 2009 to
August 2010, and from January 2007 to December 2008 served as director
of the Congressional Budget Office. During the Clinton administration,
he was a special assistant to the president for economic policy and
before that a staff economist and then senior adviser and senior
economist at the President’s Council of Economic Advisers.